5 Proven Steps to Take Today If You’re Denied for a Personal Loan

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Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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The personal loan industry is healthy and many people use personal loans to consolidate debt, according to Experian. But getting denied a personal loan can be frustrating for those looking to improve their financial situation.

A loan rejection isn’t personal, but it can be hard not to take it that way. It might remind you of some past credit missteps you’d rather forget, or it might feel like an attack on your credibility if you thought you’d get approved.

“Lenders are trying to figure out how much risk they are taking by lending someone money,” said Can Arkali, principal scientist of analytics and scores development at FICO. “They need to figure out how much money to lend and under what terms.”

But instead of allowing a personal loan denial to take your morale down a notch, use it as an opportunity to learn and improve your credit and financial standing. To help, we’ve put together a list of five steps you can take to improve your chances of getting approved the next time around.

1. Read the adverse action letter

If a lender denies your application based on something in your credit report, the Fair Credit Reporting Act requires it to send you an adverse action letter in the mail or electronically explaining why you were denied.

“One of the first steps that a consumer can take would be to read that document carefully,” said Arkali. “In there, consumers can get to see what we call ‘adverse action codes’ or ‘reason codes.'”

Reasons for denial might include:

  • Your credit score doesn’t meet the lender’s minimum standards.
  • Your credit history is limited.
  • Your debt-to-income ratio is too high.
  • You have a recent delinquency or an account in collections.
  • You have too many recent inquiries on your credit report.

Regardless of the reason the lender provides, what’s important is that you understand exactly what you need to do to get approved the next time you apply.

For example, if your credit score was too low, it’s possible that you could still get approved for a personal loan elsewhere. In fact, there are personal loans designed for people with bad credit that aren’t predatory in nature. If it’s something else, though, you can start tackling it.

2. Check your credit score and report

While an adverse action notice gives you a specific reason why you were denied, it’s wise to make sure there aren’t any other issues with your credit that could get worse by the time you apply again. You can get free access to your FICO credit score through the FICO Score Open Access program.

For example, your credit card issuer might offer your score for free through this program. Alternatively, you can check your score through the Discover Credit Scorecard, and you can access each of your three credit reports for free once a year at AnnualCreditReport.com.

Here’s an example of what you might see on your credit report:

Experian credit report

Image credit: Experian

Specifically, search for items that might be hurting your credit now or can potentially hurt it in the future. For example, your payment history makes up 35% of your FICO score. If you have a late payment on one of your accounts, the longer you take to pay it off, the more it damages your score. Also, how much you owe makes up 30% of your FICO score, so a high credit card balance can do a lot of damage.

Look for errors in your report, too. Sometimes, a creditor or credit bureau makes a mistake that can negatively affect your credit history. Alternatively, it could be a fraudulent account someone opened in your name. If you find something that’s off, dispute it with the credit bureau and start the process of getting it removed.

3. Create a plan

Now that you know what issues you need to target, create a plan to determine what you need to do and how to do it. There’s no clear-cut way to do this because your plan will depend on the issues you need to address and your overall financial situation.

For example, it might be nice to bring your credit card balance down to a reasonable level — preferably less than 30% of your credit limit. But if your budget is tight, that’s easier said than done. Take a look at areas of your budget where you can cut back, then set a goal to put a specific amount toward your credit card debt each month.

You can do the same thing if you need to get caught up on some payments, pay off an account in collections, or target another goal.

4. Be patient

Depending on the issue you’re dealing with, it can take anywhere between a few months to more than a year to get your credit where you want it to be. As a result, avoid setting your expectations too high. If your expectations are unreasonable or you get impatient, you could set yourself up for failure.

“We look at this as a financial journey,” said Arkali. “It’s analogous to trying to get into perfect physical shape. It’s not exactly easy to actually get to that point overnight. It’s gonna take some time.”

That said, it’s important to keep track of your progress. Continue to check your credit score regularly to see how your actions impact your score. Doing this will also help you get ahead of any potential issues that can develop as you’re working to improve your credit.

5. Shop around

Once you get to the point where you feel comfortable applying again, compare personal loans from several lenders to improve your chances of getting approved. Many of the top personal loan companies allow you to see rate offers before you officially apply. They run a soft credit check — which won’t hurt your credit score — to determine whether you qualify. If you do qualify, you’ll learn what your interest rates and terms could be.

As you’re shopping around, look at more than just interest rates. Compare fees, limitations, discounts, and other features each lender offers. The more lenders you compare, the more likely you are to find a lender that will approve you with reasonable terms.

Develop good credit habits for the future

If you follow the steps above, improving your chances of getting approved for a personal loan is only one of the benefits you’ll reap. You’ll also improve your chances of getting approved for other credit at reasonable rates, which can save you money on interest. Establishing good credit habits can also help you get better control over your money now and in the future.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderRates (APR)Loan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 6.199% APR to 15.365% APR (with AutoPay). Variable rates from 6.145% APR to 14.685% APR (with AutoPay). SoFi rate ranges are current as of June 15, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.145% APR assumes current 1-month LIBOR rate of 1.97% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions Apply:SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.73% – 29.99%$1,000 - $50,000
Check rate nowon SLH's secure site
6.15% – 15.37%1$5,000 - $100,000
Check rate nowon SLH's secure site
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000
Check rate nowon SLH's secure site
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
5.99% – 35.89%$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.